Peter Costello

Treasurer

11 March 1996 - 3 December 2007

INTERNATIONAL COMPANY TAX COMPARISONS

The Report by the Business Council of Australia - Corporate Taxation: An International Comparison – 2006 Update – contains misleading claims about Australia’s corporate tax levels.

Australia’s company tax rate is 30%, a level below that of our major bilateral trading partners such as the United States, Japan, Germany, New Zealand and China. Australia also has a full dividend imputation system.

The Government reduced Australia’s company tax rate from 36 per cent to 30 per cent over 2000 and 2001.
The BCA bases its claim that Australia’s tax burden is internationally high on the measure of company tax collections to GDP. As company tax is levied on profits, this approach perversely rates countries with more profitable corporate sectors as less internationally competitive.

A decline in corporate profitability in Australia would reduce corporate tax to GDP and, on this measure, make Australia more tax competitive without reducing tax rates in any respect whatsoever.

The BCA’s results do not really illustrate tax comparisons – what they really show is how profitable Australian companies have been in recent years.

The profitability of Australian firms (as measured by the corporate net operating surplus) has increased over the last ten years by over a third from 12.3 to 16.5 per cent of GDP - reaching the highest levels for the last forty years.

The BCA notes that company taxes as a proportion of GDP have grown from 4.8 per cent to 5.7 per cent from 1999-2000 to 2004-05. But all of this growth in company taxes is explained by growth in profitability rather than any tax increases – profits have gone up by 69 per cent over this period while company taxes have increased by 65 per cent. If corporate profitability were still at the level of 1999-2000, the corporate tax to GDP ratio in 2004-05 would be 4.7 per cent rather than 5.7 per cent (as measured by the OECD and BCA). The increase in corporate tax has come entirely from increased profitability, not tax increases.